Europe chemical industry at risk of being left behind – analyst

LONDON (ICIS)--The European chemicals industry is at risk of being left behind as US production grows faster with the advantages of shale gas, global analyst Bernstein Research said on Wednesday.

“?xml:namespace>US production will grow faster as capacity expands to meet local demand growth and exports resume. Meanwhile, the European chemicals industry is at risk of slower growth,” said Bernstein.

The analyst added that over the next several years, the US industry will expand production based on gas and energy advantages.

“Producers in other regions such as the Middle East and China will supply the derivatives of naphtha cracking co-products that the rest of the chemicals industry needs,” it said.

Bernstein said that US producers also have a fuel and power cost advantage for nearly all products, adding that these costs represent about 8-10% of the industry’s sales and are mostly supplied by gas and electricity.

“As a result, the US can be significantly advantaged versus Europe. Comparing the US chemicals industry, in aggregate, versus the European industry in aggregate, we estimate the US would make 50% higher earnings before interest and tax (EBIT) at today's oil-gas price differential,” it added.

However, the analyst said overall low-cost US gas is positive for the global chemicals industry as it lowers input costs and spurs economic development.